Rearden Metal Has a Bond Issue Outstanding with Ten Years

question 34

Multiple Choice

Rearden Metal has a bond issue outstanding with ten years to maturity,a yield to maturity of 8.6%,and a B rating.The bondholders' expected loss rate in the event of default is 50%.Assuming a normal economy,the expected return on Rearden Metal's debt is closest to:

• A)0.6%.
• B)1.6%.
• C)4.6%.
• D)5.9%.

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